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Study: Economic effect of climate change on farmers

Changing climate will disproportionately affect agriculture sector in both production and land value.

Jun 08, 2016

Over the next 70-100 years, the climate is projected to change dramatically, with major impacts on a wide variety of economic sectors, but the sector that is most likely to be affected by these changes is agriculture, according to findings from the University of Illinois.

A number of studies support this assertion, but relatively few look at the effect of climate change on agriculture from a comprehensive economic perspective.

An interdisciplinary team from the University of Illinois recently investigated the effects of climate change on farmland values in the southwestern U.S.

“We chose to look at farmland values because they reflect the sum of future expected profits and account for adaptation, and that's exactly what climate change is about: long-term change and adaptation,” University of Illinois economist Sandy Dall'Erba explained.

The team focused on the U.S. Southwest, where climate changes are expected to make farming even more difficult than in other regions. The predictions say that places like Arizona will get hotter overall, with more frequent heat waves and more sudden and extreme rainfall events that could lead to periodic flooding. Still, even within that one climate zone, the team expected some variation, according to the university news release. To capture that, the team separated out the effects on lowland counties versus highland counties.

What's new about the work is that the researchers used an economic model that allowed them to look across production systems so they could evaluate farmland values for soybean producers and cattle ranchers alike. The model, known as the Ricardian approach, also allowed for adaptation on the farmers' part.

“Farmers are smart. You can't assume that in 100 years, they're going to still be farming corn like they are now,” Dall'Erba said. “Climate is changing, new practices and new technologies develop, so they may switch to another production system. The Ricardian approach assumes farmers will adapt.”

Further, the researchers were able to integrate what they called “spillover” effects, which is the influence of one farmer's practices on another.

“A simple example is irrigation: The amount of water you get is very much dependent on how much the farmer upstream from you is taking away. That element has been pretty much overlooked in this framework so far,” Dall'Erba noted.

Another example of spillover is communication between farmers about farm practices and the availability of certain subsidies.

Finally, the team evaluated multiple climate change scenarios. In most socioeconomic research relating to climate change, a single scenario is tested. Dall'Erba's co-author, atmospheric scientist Francina Dominguez, knew it was important to provide a range of what the future climate may look like. As such, the researchers worked with seven scenarios of future climate data derived from several global and regional climate models.

Taking all of these factors into account, the team found that irrigation, population density and farm subsidies all increased farmland value, but subsidies had an effect in highland counties only. In addition, heat waves were found to hurt productivity.

Their results also indicated that land values in one location are influenced by irrigation and climate conditions in neighboring locations due to water depletion, water runoff and/or sudden floods that follow intense rainfall.

“Counties are open economies, so elements beyond their boundaries have an influence on them,” Dall'Erba said. “Overall, and based on the set of future climate scenarios accounted for in our work, it seems that highland counties will be more affected by climate change than lowland counties.”

The next step for the research team is to apply their approach to the rest of the country. Because they found variation between highland and lowland counties within a single climate zone, they expect to find even more spatial variation when they look at the country as a whole. They also plan to incorporate the role of agricultural product trade into their system.

“One element that has been overlooked in the field is that one locality may experience a sudden drought and, as a result, may import more corn or cotton from elsewhere. That kind of spillover due to unexpected weather events outside your own locality is something that deserves a lot more attention,” Dall'Erba noted. "Several articles along these lines have already appeared, but they focus on international trade. Much more needs to be done on the trade network taking place within countries."

The article, “The Impact of Climate Change on Agriculture in the Southwestern United States: The Ricardian Approach Revisited,” was published in Spatial Economic Analysis. The work was funded by the Water, Environmental & Energy Solutions Initiative as well as the U.S. Department of Agriculture's Environmental & Natural Resource Economics program.